What is the regulation and compliance structure of the Carbon Credit Market?
Internationally – CDM Executive Board
The CDM (Clean Development Mechanism) is regulated and overseen by the Executive Board, which was established by the Marrakesh Accords. It comprises 10 board members, with 10 alternates, from industrialized countries with emissions reductions commitments (Annex B) as well as non-Annex B countries.
To assist in carrying out its responsibilities, the Executive Board may establish panels or working groups. There are currently five Panels/groups:
Clean Development Mechanism Registration and Issuance Team: responsible for assessing requests for registration.
Meth Panel: responsible for developing guidelines and recommendations on methodologies based on submitted proposals
Afforestation and reforestation working group: responsible for developing recommendations on affo / refo methodologies in collaboration with the Meth Panel
Small scale working group: responsible for developing recommendations on small scale methodologies
Accreditation Panel: responsible for preparing material related to accrediting operational entities
The long-term future of the Clean Development Mechanism is guided by the proceedings of the Conference of Parties, held yearly since 1995 and comprising of delegates from all countries which are Parties to the UNFCCC.
Designated National Authorities (DNA)
At a national level, each country involved in the CDM has a Designated National Authority (DNA) responsible for granting approval to local projects which have fulfilled national criteria for sustainable development and with a good chance of succeeding at eventual registration, as well as acting as a focal point for CDM activities. The UNFCCC maintains a list of DNAs and contact persons, and most DNAs will have dedicated websites and online resources.
It is a requirement for parties who have ratified the Kyoto Protocol to specify a DNA – Buyers will require approval from the DNA of the industrialized country where they have commercial operations in, while Sellers will require approval from host country DNAs.
Designated Operating Entities (DOE)
These are third-party independent parties which act as "auditors" for the CDM project. These companies have to be certified by the CDM Executive Board as Designated Operating Entities (DOE) , before they are able to provide this service to project owners. DOEs are responsible for checking and validating the Project Design Document (PDD); this is a technical document which fully describes the CDM project.
On the buy-side, there are many different types of buyers ranging from public and private utilities, oil companies, investment banks, government programmes and institutional and private hedge funds. While some Buyers approach Sellers directly, others prefer to operate through brokers. Sellers are also likely to be able to access a much wider market of interested buyers through using a CER broker.
All VERs at a minimum should be verified by an independent third-party. The general market requirement as a minimum standard is the Voluntary Carbon Standard (VCS).
The classification of VERs is more subjective than CDM credits and criteria projects producing them must meet are often defined by buyers.
As an independent investor, the safest approach is to look for the Voluntary Gold Standard. The Gold Standard is headquartered in the BASE (Basel Agency for Sustainable Energy) offices in Basel, Switzerland, with offices in Geneva, Rome and San Francisco. It employs local experts in Brazil, China, India and South Africa.
The Gold Standard is registered as a non-profit foundation under Swiss law.
To be eligible for Gold Standard Certification, a project must:
Be reducing one of the three eligible Green House Gases: Carbon Dioxide (CO2), Methane (CH4) and Nitrous Oxide (N2O)
Not employ Official Development Assistance (ODA) under the condition that the credits coming out of the project are transferred to the donor country.
Not be applying for other certifications, to ensure there is no double counting of Credits
Demonstrate it’s ‘additionality’ by using the United Nations Framework Convention on Climate Change‘s (UNFCCC) Large Scale Additionality Tool and show that the project is not a ‘business-as-usual’ scenario.
Make a net-positive contribution to the economic, environmental and social welfare of the local population that hosts it
The Gold Standard does not include forestry, which is often evaluated using the Climate Change and Biodiversity Standards (CCBS) developed by non-profit organizations. The CCBS is a stringent standard customized for forestry projects, and focuses on the contribution to local economies and integration with local communities. A new quality label, the VER+, is not yet widely accepted by the market, but has been recently launched by TUV SUD, an entity accredited by the UNFCCC to assess compliance projects. Within the United States, the ISO 14045 appears to be preferred, although this does not appear to be widely known globally.